21 Mar 2018

Why the extension of the childcare voucher deadline is great news for working families

The government has recently announced that they will be extending the deadline for people signing up to childcare voucher schemes by six months. This is great news for working families, as they now have more time to sign up to the scheme.

The extension of the deadline means that more parents will be able to save money on their childcare, as they will have the option to assess whether they save more money using the existing scheme rather than the new, tax-free childcare scheme that was launched on 28^th April last year.

Tax-free childcare means that the government subsidises 20% of a child’s childcare costs on fees of up to £10,000 per year, saving up to £2,000 per child, per year.

Childcare vouchers mean that parents can exchange up to £243 per month from their salary in return for the same amount of childcare vouchers. Parents can then use these to pay for any registered childcare for children up to the age of 16.

The extension comes after the new, online tax-free childcare system, “Childcare Choices”, left many parents with problems setting themselves up on the scheme. Just two weeks into the system being rolled out, the website experienced technical difficulties regarding issuing temporary passwords and resulted in many users being unable to sign up.

What are the benefits of each scheme?

Many parents who currently use childcare vouchers will be better off continuing with the scheme, especially those who fall into the categories below:

Middle-low earning parents if not eligible for Working Families Tax Credit
Basic Rate taxpayers spending less than £9,336 on childcare each year
Families with only one working parent
Families with low childcare costs e.g. only using a few hours per week and before and after school clubs
Families using Childcare Vouchers for extra curriculum activities through an Ofsted or Independent School provider
Families using childcare for children over the age of 12
Families who want to start saving towards childcare costs as soon as their baby is born
Family run businesses where savings can be made on PAYE, Employers National Insurance and Corporation Tax
Families where one parent earns above £50,000, can use salary sacrifice to reduce their salary, which should enable them to receive more child benefit.

However, some parents may be better off using the new, tax-free childcare scheme. This includes:

Self-employed people, as they were not eligible for childcare vouchers
Parents with very high childcare costs (i.e. over £10,800 of childcare for at least one child). The help goes up the more children are receiving childcare in addition to this.

What are the options?

Employees are currently able to switch to tax-free childcare and sign up using the online system. Tax-free childcare is beneficial for self-employed people and parents with very high childcare costs, meaning they may be better off signing up to the new scheme. Once employees make the switch to tax-free childcare, they will not be able to go back to using childcare vouchers.

Employees are now able to sign up to a childcare voucher scheme until October 2018. As long as employees are signed up before this, they will be able to use the scheme for as long as they need to. For employers, this is also the case if considering implementing a childcare voucher scheme for employees.

Which scheme is best for employees?

The government has provided a useful calculator enabling employees to see which scheme works best for them, as well as calculating the assistance they are entitled to. Click here to go to the calculator.

This article was provided by Busy Bees Benefits.